Do Nothing Portfolios

Investment Analysis Clubs Macro Economic Trends and Risks
1

Many years ago I did a yearend audit of my portfolio and was shocked. The portfolio broke even while my stock broker charged me $50,000 in trading commissions – this was before online discount brokers. My next step was to put half the portfolio with an online discount broker but maybe I should have stopped trading so much. Back then I relied on financial advisors, I had a subscription to a monthly report that told me what to. I did OK but maybe I traded too much. 40 years later I’m a better stock picker so I no longer use financial advisors. One of my newer strategies is to split the portfolio in two, about 75% for growth and 25% for income. The growth part is mostly “Do Nothing” while the income portion relies mainly on covered calls and that implies lots of trading. Before I made the split the growth part had lots of “opportunity losses” which disappear when you don’t trade them.

Peter Lynch advised, “Don’t cut your flowers and water your weeds.” When you rebalance a portfolio that is exactly what you do, you sell you biggest winners and add to the losers. What would happen if you took Peter Lynch’s advice to the extreme? A “Do Nothing Portfolio.”

This morning I ran into two uTube videos that touch on the subject, the first about Alibaba that does not at first seem like do nothing as it is tax harvesting but ends in Charlie Munger’s do nothing investing style

Charlie Munger’s Final Call on Alibaba Stock
https://www.youtube.com/watch?v=2f0l2wCVoq4&t=4s

The second covers long term outcomes of ‘Do Nothing Portfolios’

How to beat the S&P 500… by doing nothing [1935-2022]
https://www.youtube.com/watch?v=EeyxZMR9MRU&t=4s

In other threads we are talking about how to finance low end income people, UBI being a favorite of lots of people. While I support the objective my disagreement is with any kind of transfer payment. The conundrum is how to provide a long term source of income that is NOT a perpetual transfer payment.

Capitalism teaches us that capital is the source of wealth as opposed to Marx who said that labor was the source of wealth. Both are partly right, it takes labor and capital to optimise the production of wealth. There remains the problem of distribution of the newly created wealth, should it reward capital or labor? How to split it equitably?

One of the objections to replacing Social Security’s ‘so called’ funds with investment portfolios is the cut the financial industry takes and it can be severe when portfolios are churned, a favorite of unethical brokers but also a reality with excessive trading.

Maybe the solution is giving newborns a perpetual no-trade portfolio. Details to be explored…

The Captain

6 Likes
2

From the bird’s eye view the real problem with allowing investment accounts over straight SS pay most people will lose a larger chuck of their retirement funds. This means the US economy will be all the poorer. The transfer payments are an important part of the US economy.

The other problem is the same people who want investment accounts would take away SS altogether. That is just pure ignorance. So how can we listen to them at all? We are supposed to be human beings doing intelligent things.

In the name of simplistic things, that is not a compliment, we have tried supply side econ. It never worked. The US is now 40 years deep in debt because of really bad real GDP growth rates. It was never supposed to work. We are leaving the save a penny destroy $2 mentality behind us.

2 Likes
3

A few things. Many seem to forget it is “social security”. Not individual security. That is literally what individual retirement accounts are for. Some die early. Some die after a short retirement. Some live a very long time. The money goes into a pot, and then out of the pot. There are no “individual” account balances.

Next you need to wonder what is responsible to invest in. Greenspan was highly against stock investments with the SS trust fund, if for no other reason it would make the Feds the largest investor in public companies, period. Now… imagine how much the government might try to influence markets given the size of the investment and their exposure to downsides? Sorry, this is a very, very bad idea.

So they invest, basically, in Treasuries. More or less. And this is what is typically known as “raiding” the social security trust fund. Except it has to be repaid, with interest, of course.

What is most important for the trust fund? Growth, or stability of account balance so that payments can be made? I’d argue the latter.

However. With demographics going upside-down, this really changes the math of it all.

2 Likes
4

Many seem to forget it is “social security”. Not individual security.

UBI is not social security! The key word in UBI is income not security. Social security assumes you have taxable income that SS might return to you in old age. When robots take over all the jobs there will be no taxable salaries to fund SS.

We are talking two different things.

The Captain